How To
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I’ll park a chart of the late action here and assist in getting things started:
[Updated: 6:45 AM, Feb 5]
Yesterday, after the market close, Barron’s Online had a damning article (Do Apollo Group Investors Need an Education?)on APOL which pretty much reinforces what I and the articles I have linked to have said. Excerpts:
Members still get lost in wave discussions, so we need a starting place for discussions of structure, but most importantly, we need a CONSISTENT NOTATION, reasonably easy to use but not oversimplified. This chart shows the notation as might be applied to the S&P:
STRUCTURE.
Wave structure on the right side of the chart is not exactly etched in stone yet, but what is shown below is as close as I can find to a consensus. We don’t have to agree precisely on the stuff that is still undetermined; as far as structure goes, about the best this can be is a starting place for discussions.
NOTATION.
I would like to plead with all users to adopt a unified notation so we can understand each other, at least for the three levels of waves that we discuss most often. The following is a first draft. I tried to make it as compact and easy as possible to type in comments and enter in charts. This enables someone to a sentence such as “I think the S&P is in 3 of (5) of [1],” and argue that they “think 2 of (5) has a way to go yet.” We could all understand where to look on the chart and what kind of structure to think about, and, as with comments on this blog, can be typed in a font of fixed size and color.These suggestions come from Dan’s charts, my stuff, and especially this page on Kenny’s list:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3095409&cmd=show[s156209948]&disp=P
How to put daily MA’s, BB’s, and indicators on an hourly chart is something else for Schweizer and me and a few of the other usual suspects to argue about. I had been simply using a multiplier of 7 because the 6.5-hour trading day generates 7 hourly bars. This would imply using a 350hMA to generate a 50dMA on a 60-min chart. Then Schweizer used 6.5 as a multiplier, yielding 325hMA to clone his alleged 50dMA. For most investors, this is probably even less interesting than arguments between EW freaks about wave counts at limiting fractal resolution (if they had nanosecond charts, they would try to identify waves on them, too). However, having the time and tools, I decided to see what the multiplier might be. After all, markets recently closed at 1pm EST near holidays, open for 3.5 hours and generating 4 hourly bars on such days. After much fiddling around, I found that a multiplier of 6.8 works about the best. Here are overlaid daily and hourly charts, both starting Oct 1:
These two indicators are essentially equivalent in use and interpretation, but one can be easier to use than the other, depending on the data in the chart. Here are two examples, which should work without a subscription.
You need a full-blown image cruncher such as Adobe Photoshop Elements (PSE). It’s the world’s greatest software bargain, about $80 from Amazon (full Photoshop adds no useful capability, even for most digital photographers, and costs $600+). PSE is probably a lot cheaper from academicsuperstore.com if you have access to even the most rudimentary excuse for a student or faculty ID card (mine has no date, no ID number, just my name and photo, and a picture of campus with the name of the college where I no longer work). Try to get the old Version 6, which will be cheaper and probably less buggy. In fact, earlier versions will be fine for charts, but they work with Windows XP, while V. 6 & 7 work with Vista as well as XP. If you hang out at a college like Idan and Mohan and me, you may be able to buy PSE for $50ish from the college book store.
Stockcharts.com’s free version will do lots of stuff, including drawing a few MA’s of your choice.
Here is a generic chart that should work without a subscription:
http://stockcharts.com/h-sc/ui?s=SPY&p=D&b=3&g=0&id…
(replace SPY with any symbol in their data base)
Static chart image:
It has the default versions of the following TA tea leaves, probably the most-used:
By itself, $CPC (CBOE put/call ratio) appears to be little more than a chaotic assemblage of points, one per day. However, its MA’s tend to make their turning points earlier than the MA’s of indexes, sometimes earlier than the indexes themselves. It also stays in a range that varies between 0.7ish and 1.5ish, so it gives an impression of how bullish or bearish the option traders are. They tend to understand the market better than average. These qualities make $CPC useful in trading levered ETFs, at least in the medium term (it is only reported once per day).
In spite of repeated assertions that levered ETFs are primarily day-trading vehicles, a glance at a chart of even the most volatile ETF should make apparent the opportunities for trading over a few days to a month or so, especially if one abandons the silly goal of hitting exact bottoms and tops, and sticks to the business of merely buying low and selling high. The above chart shows that if some shorter-term MA of $CPC is down near 0.80 or 0.90, we ought to be able to find a bear ETF at a decent price. It should be selling for at least 50% more sometime within the next few weeks or months, probably with $CPC’s MA near 1.05 to 1.15. At that point, I would probably quit acting like the perma-bear that I have inaccurately been labeled, and cast about for a nice hot bull ETF, paying special attention to selling opportunities, because in a bear market, any rally, is likely to collapse back farther than its beginnings, as its chart bounces down the bloody hill growing the occasional sprigs of green that we can exploit by temporarily turning bullish.
Using a MA to smooth raw data always gives results that lag the actual events that interest us, IF IN THE SAME DATA. What is especially useful about $CPC is that it contains information from savvy traders, not about the indexes related to our ETFs, but ABOUT FUTURE EVENTS. Thus $CPC MAs can sometimes signal turns in the market almost at the time they actually occur. In the next chart, the orange 15-day EMA of $CPC has its turning points before the white 10-day EMA of DUG, sometimes even before DUG itself ($CPC itself has been made invisible on this chart):
Of course we still have all our other indicators, but in the future, I’ll be adding one more line to my charts, something like the 20-day MA of $CPC (or whatever MA or EMA seems to work best with the ETF in question):
The critical steps are to save it in GIF or PNG format (not JPEG), and to use the “Options” panel to link the thumbnail of the image to a full-size image in a pop-up window.
